WPCi> 2MB%RK Z3|jTimes New RomanTimes New Roman Bold P6G;P"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+99999999S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""y.X80,X\  P6G;P7jC:,9Xj\  P6G;XP7nC:,|Xn4  pG;Xy.\80,T\4  pG;\5hC:,%2Xh*f9 xr G;XXW!@(#,h@\  P6G;hPH5!,i,5\  P6G;,P\{,W80,%0W*f9 xr G;X               yOD X-w  Federal Communications Commission`)(# DA 961512 ă  yxdddy   @-  -@ X X(#Ԋ #C\  P6QP# 1ZBefore the  yO FEDERAL COMMUNICATIONS COMMISSION  yO }Washington, D.C. 20554 #XP\  P6Q9XP# TP x` `  hh@hpp     X-In the Matter of: hh@) x` `  hh@) x` `  hh@)  X-D.D. CABLE HOLDINGS, INC. and@)hppCSR 4725D  X-D.D. CABLE PARTNERS, L.P.hh@) x` `  hh@)  X -Petition for Special Reliefhh@)  XD -  MEMORANDUM OPINION AND ORDER ĐTP  X- Adopted: ` ` September 6, 1996 hh@ hppReleased:    September 9, 1996 By the Chief, Cable Services Bureau:  X- INTRODUCTION ă  X- ` x1.` ` x` ` In this Memorandum Opinion and Order, we address a petition for special relief  x(the "Petition") filed by D.D. Cable Holdings, Inc. ("DD Holdings") and D.D. Cable Partners,  x[L.P. ("DD Partners"). The petitioners (being collectively referred to herein as "DDC") ask that  xthe Bureau grant a waiver of the Commission's rules to the extent necessary to permit DD  xHoldings to establish regulated cable rates for its 93 cable systems in accordance with the small  X- x-system costofservice methodology adopted in the Sixth Report and Order and Eleventh Order  X- xLon Reconsideration in MM Docket Nos. 92266 and 93215 ("Small System Order").T yO}-ԍxFCC 95196, 10 FCC Rcd 7393 (1995).T The City  xxof Slayton, Minnesota and the City of Savage, Minnesota (the "Cities") jointly filed an opposition to the Petition ("Opposition").  X- ` _x2.` ` Section 623(i) of the Communications Act of 1934, as amended ("Communications  x Act"), requires that the Commission design rate regulations in such a way as to reduce the  xNadministrative burdens and the cost of compliance for cable systems with 1,000 or fewer  Xe - x=subscribers.Ge X yOn$-ԍx47 U.S.C.  543(i).G Accordingly, in the course of establishing the standard benchmark and costof xxservice ratemaking methodologies generally available to cable operators, the Commission adopted"N!,))ZZg "  X- xvarious measures aimed specifically at easing regulatory burdens for these smaller systems.S {Oy-  zԍxSee, e.g., Report and Order and Further Notice of Proposed Rulemaking in MM Docket No. 92266, FCC  x93177, 8 FCC Rcd 5631 (1993); Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of  yO - xProposed Rulemaking in MM Docket No. 92266, FCC 9438, 9 FCC Rcd 4119 (1994); Fifth Order on  xReconsideration and Further Notice of Proposed Rulemaking in MM Docket Nos. 93215 & 93266, 9 FCC Rcd 5327  xK(1994); Eighth Order on Reconsideration in MM Docket Nos. 92266 & 93215, FCC 9542, 10 FCC Rcd 5179 (1995). In  X- xMthe Small System Order, the Commission further extended small system rate relief to certain  X- xsystems that exceed the 1,000subscriber standard.^BS {O -ԍxSmall System Order, 10 FCC Rcd at 7406.^ These systems were deemed eligible for small  xsystem rate relief because they were found to face higher costs and other burdens disproportionate  X-to their size. S {O+ -  >ԍxId. at 7407. More recently, Congress amended Section 623 of the Communications Act to allow greater  xideregulation for "small cable operators," defined as operators that "directly or through an affiliate, [serve] in the  xaggregate fewer than 1 percent of all subscribers in the United States and [are] not affiliated with any entity or  xKentities whose gross annual revenues in the aggregate exceed $250,000,000." Telecommunications Act of 1996  xZ("1996 Act"), Pub. L. No. 104104,  301(c), 110 Stat. 56, approved February 8, 1996; Communications Act,   x623(m), 47 U.S.C.  543(m). Pursuant to this amendment, the rate regulation requirements of Sections 623(a), (b)  xand (c) do not apply to a small cable operator with respect to "(A) cable programming services, or (B) a basic service  xhtier that was the only service tier subject to regulation as of December 31, 1994," in areas where the operator serves  {Om-50,000 or fewer subscribers. Id.  Xx- ` #x3.` ` The Small System Order defines a small system as any system that serves 15,000  Xc- xor fewer subscribers.^cS {O-ԍxSmall System Order, 10 FCC Rcd at 7406.^ The Commission recognized that systems with no more than 15,000  xsubscribers were qualitatively different from larger systems with respect to a number of  xZcharacteristics, including: (1) average monthly regulated revenues per channel per subscriber; (2)  xaverage number of subscribers per mile; and (3) average annual premium revenues per  X - xLsubscriber.K :S {O-ԍXxId. at 7408.(#K The magnitude of the differences between the two classes of systems as to these  xcharacteristics indicated that the 15,000 subscriber threshold was the appropriate point of  X -demarcation for purposes of providing for substantive and procedural regulatory relief.; S {OV -ԍxId. ;  X - ` x4.` ` However, most forms of rate relief provided under the Small System Order and the  xCommission's rules are available only to those small systems that are owned by a small cable  X- xcompany, which is defined as a cable operator that serves a total of 400,000 or fewer subscribers"^,-(-(ZZ"  X- x-over all of its systems. \S {Oy-  ԍxId. A small system is deemed owned by a larger cable company if the company "holds more than a 20  yOC- xpercent equity USESESUSinterest (active or passive) in the system or exercises de jure control (such as through a general  {O -partnership or majority voting shareholder interest)." Id. at 741213, n. 88. The Commission adopted this threshold because it roughly corresponds  xto $100 million in annual regulated revenues, a standard the Commission has used in other  X- xcontexts to identify smaller entities deserving of relaxed regulatory treatment.F S {Oo-ԍxId. at 740911.F The Commission  xfound that cable companies exceeding this threshold would find it easier than smaller companies  X- xto attract the financing and investment necessary to maintain and improve service.C ~S {O -ԍxId. at 7411.C In addition,  xithe Commission determined that cable companies that exceeded the small company definition "are  xbetter able to absorb the costs and burdens of regulation due to their expanded administrative and  X_-technical resources."C _S {O -ԍxId. at 7409.C x` `  X1- ` x5.` ` In addition to adopting the new categories of small systems and small cable  X - x\companies, the Small System Order introduced a form of rate regulation known as the small  X - xsystem costofservice methodology.F  S {OX-ԍxId. at 741828.F This approach, which is available only to small systems  xowned by small cable companies, is more streamlined than the standard costofservice  xmethodology available to cable operators generally. In addition, the small system rules include  xsubstantive differences from the standard costofservice rules to take account of the  xMproportionately higher costs of providing service faced by small systems. Eligible systems  x[establish their rates under this methodology by completing and filing FCC Form 1230. In order  xto qualify for the small system costofservice methodology, systems and companies must meet  Xd- x[the new size standards as of either the effective date of the Small System Order, or on the date  XO-thereafter when they file the documents necessary to elect the relief they seek.O4 S {O4-ԍxId. at 7413. The effective date of the Small System Order was August 21, 1995.  X!- ` x6.` ` Cable systems that fail to meet the numerical definition of a small system, or  xwhose operators do not qualify as small cable companies, may submit petitions for special relief  xLrequesting that the Commission grant a waiver of its rules to enable the petitioning systems to  xmutilize the various forms of rate relief available to small systems owned by small cable  X- xcompanies.F S {O<$-ԍxId. at 741213.F The Commission stated that petitioners should demonstrate that they "share relevant  X- xZcharacteristics with qualifying systems.":X S {O&-ԍxId.: Other potentially pertinent factors include "the degree",-(-(ZZ"  x[by which the system fails to satisfy either or both definitions, whether the system recently has  xbeen the subject of an acquisition or other transaction that substantially reduced its size or that  x?of its operator, and evidence of increased costs (e.g., lack of programming or equipment  X- xdiscounts) faced by the operator.":S {O4-ԍxId.: If the system fails to qualify for relief based on its affiliation  xLwith a larger cable company, the Commission will consider "the degree to which that affiliation  xexceeds our affiliation standards, and whether other attributes of the system warrant that it be  Xv- x\treated as a small system notwithstanding the percentage ownership of the affiliate.";vZS {O -ԍxId. ; The  xCommission specifically stated that this list of relevant factors was not exclusive and invited  xpetitioners to support their petitions with any other information and arguments they deemed  X1-relevant.:1S {O -ԍxId.:  X - THE PETITION AND THE OPPOSITION ă  X - ` x7.` ` According to the Petition, DDC operates 93 cable systems serving about 115,000  X - xsubscribers in 214 communities throughout Illinois, Iowa, Minnesota and Wisconsin.? ~S yO-ԍxPetition at 2.? Each  X - x0system serves fewer than 15,000 subscribers: S {Of-ԍxId.: and therefore qualifies as a small system.  xHowever, DDC notes that it is affiliated with Leo J. Hindery, an individual "who, arguably, holds  Xy- x-attributable interests in cable operations serving more than 400,000 subscribers."ByS {O-ԍxId. at 23.B To the extent  x.DDC is affiliated with Hindery, the DDC cable systems are ineligible for the small system costofservice methodology, absent special relief.  X- ` x8.` ` DDC argues that its "independent business structure and its classic small systems  X- xydemonstrate the need for a waiver of Commission rules."@2 S {O-ԍxId. at 3.@ Describing that business structure,  xthe Petition indicates that the owner of the cable systems at issue is DD Holdings, a corporation  X- xthat is a whollyowned subsidiary of DD Partners.I S {OM#-ԍxId., Attachment D.I DD Partners, according to the Petition, has  xone general partner and one limited partner, each of which holds a 50% equity interest in DD  X- x^Partners.:V S {O&-ԍxId.: The general partner of DD Partners is InterMedia Partners, II, L.P.<S {O-ԍxId.< That"Z,-(-(ZZ"  X- x.partnership's general partner is InterMedia Capital Management II., L.P.:ZS {O -ԍxId.: The general partner  X- xof that partnership is Hindery.:S {O-ԍxId.: Through these successive general partnership interests, Hindery  xholds an attributable interest in DD Holdings, the direct owner of the cable systems for which  X-the waiver is sought.@~S {O -ԍxId. at 4.@  X- ` x9.` ` The limited partner of DD Partners, according to the Petition, is General Electric  Xv- xCredit Corporation.@vS {O7-ԍxId. at 3.@ The Petition does not describe the ownership structure of General Electric  xCredit Corporation. However, the Petition does state that General Electric Credit Corporation has  XH-no attributable interest in any cable company or cable system other than DDC.FHS {O-ԍxId. at 3, n. 5.F x  X - ` x10.` ` The Petition asserts that, except as stated above, DDC is not affiliated with any  X - xother cable operators.W  4 S {O-ԍxId. at 34 and Attachments C, D.W Thus, according to the Petition: "The common thread that links [DDC]  X - xto any other cable television operation is the ownership interest of Mr. Hindery."@! S {Oc-ԍxId. at 4.@ The Petition  xstates that Hindery has attributable interests in cable systems that serve a total of 542,000  X -subscribers, which includes the approximately 115,000 subscribers served by DDC.:" X S {O-ԍxId.:  X- ` x11.` ` DDC notes that in previous filings to the Bureau, it asserted that its systems met  x>the criteria for small system relief and that, without a waiver, it intended to rely on the small  Xb- xsystem rules in responding to certain pending rate complaints.@#bS {O -ԍxId. at 5.@ This assertion rested on the  xnotion that Hindery's interest in Robin Media Group, Inc. ("RMG"), a cable operator serving  X4- xK180,000 subscribers, should not be deemed attributable under the small system rules.:$4|S {Oa$-ԍxId.: Although  X- xHindery's ownership interest in RMG exceeds the 20% attribution threshold,J%S yO&-ԍx47 C.F.R.  76.934(a).J DDC had argued"%,-(-(ZZ"  xthat we should discount that interest to take account of a capital appreciation program that was  X- x.created to provide financial incentives for the benefit of certain RMG employees.Q&S {Ob-ԍxId. at 5 and Attachment F.Q The effect  xof that program, according to DDC, is to dilute the value of Hindery's ownership interest in RMG  X- xjto less than 20%.:'ZS {O-ԍxId.: If, for this reason, we were to conclude that Hindery's interest in RMG was  xnot attributable to him, deducting the 180,000 RMG subscribers would leave fewer than 400,000  X- x\subscribers attributable to Hindery, according to DDC.:(S {O* -ԍxId.: In the Petition, DDC refers to this  xargument but then, in the alternative, asserts that "a waiver is appropriate because, on the relevant  xMdates, [Hindery's] interest in RMG would have been 22%, only narrowly exceeding the 20%  XH-attribution threshold set forth in the Small System Order."B)H~S {Ow-ԍxId. at 56.B  X - ` ~x12.` ` DDC further argues that its small systems bear characteristics of small systems  xgenerally and therefore deserve small system treatment. With respect to subscriber density, for  xexample, DDC states that its systems serve approximately 40 subscribers per mile of cable plant,  X - xwhereas the average among small systems generally is 35.3 subscribers per mile.B* S {O-ԍxId. at 67.B With respect  x[to monthly regulated revenues, DDC notes that its average of $0.75 per channel per subscriber  X - xis less than the small system average of $0.86.B+ S {O-ԍxId. at 78.B DDC further posits that its systems have average  xannual advertising revenues that amount to $1.31 per subscriber. According to the Petition, this  x["small amount of advertising revenue . . . points once again to its need for regulatory flexibility  Xd-in order to attract other sources of capital."@,d4 S {OI-ԍxId. at 8.@  X6- ` Bx13.` ` Finally, the Petition asserts that small system rate relief is appropriate because  X- xxDDC "has always operated as an independently financed entity."@- S {O -ԍxId. at 9.@ According to the Petition, the  xkDDC systems "are not consolidated or clustered" with any system in which Hindery has an  X- x<interest.:.X S {O#-ԍxId.: DDC contends that it effectively is insulated from Hindery and the various InterMedia  X- xLcable operations, and that it receives little benefit as a result of its affiliation with them.:/S {Ou&-ԍxId.: DDC  xstates that it does have "indirect access" to discounts when purchasing cable programming and"|/,-(-(ZZ%"  xequipment, presumably by virtue of its affiliation with a larger operator, but contends that many  X- x=operators with small systems enjoy such discounts.:0S {Ob-ԍxId.: In addition, DDC notes that the Bureau  xpreviously has determined that the receipt of such discounts does not preclude a grant of small  X- xsystem rate relief.1ZS {O-  ԍxId. at 89, citing In The Matter of Insight Communications Company, L.P., Memorandum Opinion and Order, CSR No. 4559D, DA 952334,  22 (rel. Nov. 13, 1995). DDC acknowledges that it receives accounting and other administrative  xassistance from InterMedia Partners, but contends that it "pays a market rate fee for such  X-services."@2S {O -ԍxId. at 9.@  X_- ` x14.` ` "Most importantly," the Petition asserts,"[DDC] is capitalized and financed as a  x.standalone company whose finances are nonrecourse to any other entity, including those in  X1- xwhich Mr. Hindery maintains an interest."A31FS {O(-ԍxId. at 10.A DDC describes and attaches various loan and  xpartnership agreements purporting to show that neither Hindery nor any of the InterMedia entities  X - xNbears any liability as a result of their affiliation with DDC.U4 S {O-ԍxId. at 10 and Attachments GJ.U DDC argues that a waiver is  xappropriate because "[t]his financial independence marks [DDC] as a small cable company which  xthe small system rules are intended to assist so that it may continue to provide the quality of  X - xservice needed to compete in the increasingly competitive marketplace . . . ."C5 j S {O-ԍxId. at 1011C DDC assures that  x"[t]here has been no change in this independent financial structure to date, nor is it anticipated  X-that any such change will occur."A6 S {O=-ԍxId. at 10.A  Xb- ` x15.` ` In their Opposition, the Cities particularly challenge this last assertion, noting that  xfive days before filing its Petition on April 22, 1996, DDC announced that it had entered into a  X4- xmerger agreement with Triax Midwest Associates, L.P. ("Triax"), another cable operator.A74 S yOs -ԍxOpposition at 2.A  X- xAttached to the Opposition is a copy of a completed FCC Form 394 describing the merger.8S yO"-  ԍxFCC Form 394 is the form used by a cable operator when seeking the local franchising authority's consent to the assignment or transfer of control of a cable franchise. The  xForm 394 and an attachment thereto state that the merger will result in the creation of a  x"restructured Triax" that will serve 487,135 subscribers via several hundred cable systems,  xincluding the 93 DDC systems at issue in this case; that DDC will obtain a limited partnership  x\interest in the restructured Triax and a cash payment; and that consummation of the merger"v8,-(-(ZZ"  X- xagreement is scheduled for July or August of 1996.e9S yOy-ԍxOpposition at 1, 2; Opposition, Attachment at 9, 10.e According to the Cities: "As a result of  xthis transaction the vast majority of information contained within [DDC]'s Petition for Special  X-Relief is no longer accurate . . . ."@:XS {O-ԍxId. at 2.@  X- ` x16.` ` In addition, the Cities express concern that granting the Petition would "adversely  xaffect subscriber rates in [the affected] communities potentially resulting in rate increases above  Xv- xLmaximum permitted levels allowed pursuant to the Commission's rate regulations.":;vS {O -ԍxId.: For these reasons, the Cities request that we deny the Petition.  X1- ` Bx17.` ` In its Reply, DDC first asserts that the Triax merger is irrelevant because DDC  xis seeking "to confirm its small cable company status at a point in time which occurred more than  X - xone year before the proposed transaction was announced."S< |S yO0-ԍxReply at 2 (emphasis in original).S DDC notes that in the Small System  X - xjOrder, the Commission determined that any rate complaint pending against a cable operator as  xof the release date of that order (June 5, 1995) would be resolved in accordance with the small  xsystem costofservice rules, if the operator and the cable system in question met the small cable  xicompany and small system definitions as of that release date and as of the date the complaint was  X- x=filed.>= S yOQ-ԍxReply at 23.> DDC repeats its prior assertion that it and its systems in fact satisfied the small system  xand small cable company definitions as of the relevant dates and that no special relief is required  Xf- xin order to apply the small system rules to rate complaints that were pending as of June 5, 1995.@>fS {O-ԍxId. at 3.@  xjOn this basis, DDC characterizes as irrelevant the merger with Triax because that transaction is  X8- xjscheduled to close more than a year after June 5, 1995.:?8. S {O-ԍxId.: DDC states that it filed its Petition on  xyApril 22, 1996 "out of an abundance of caution in order to provide additional documentation to  xxsupport a waiver of the rules should the Bureau conclude that evidence previously provided does  X-not conclusively establish [DDC]'s small cable company status.":@ S {Od"-ԍxId.:  X- ` x18.` ` In the alternative, DDC asserts that the merger is just one of several transactions  xproposed by Triax and that, after the consummation of all of these transactions, Triax will be"R @,-(-(ZZ"  X- x[serving fewer than 400,000 subscribers.@AS {Oy-ԍxId. at 4.@ As a result, the DDCTriax merger "will simply result  x[in a small cable company [Triax] owning small systems eligible to use streamlined small system  X- xycostofservice rate rules."@BZS {O-ԍxId. at 5.@ On this basis, DDC seeks to distinguish the instant case from the  X- xfacts of a prior decision, In the Matter of Marcus Cable Properties, Inc. ("Marcus"), in which we  xjdenied a petition for special relief, based in part on transactions that occurred after the petition  X- x=was filed.CS {O, -  \ԍx In The Matter of Marcus Cable Properties, Inc., Memorandum Opinion and Order, CSR No. 4562D, DA 96935,  22 (rel. June 12, 1996). DDC notes that Marcus exceeded the small cable company definition when it filed  Xx- xits petition, and added an additional 700,000 subscribers shortly thereafter.?DxFS yOo -ԍxPetition at 6.? In the proposed  x<merger at issue in the present case, "ownership of the small systems in question will simply move  XJ-from the hands of one small cable operator to another small cable operator," according to DDC.:EJS {O-ԍxId.:  X - ` x19.` ` DDC disputes the Cities' contention that granting the Petition could result in  x<unreasonable rates, noting that the DDC systems will remain subject to rate regulation even if the  X - xPetition is granted.:F h S {O-ԍxId.: Further, DDC objects to the Cities' opposition because it was filed 11 days  X -late.@G S {O-ԍxId. at 7.@  X - (DISCUSSION ă  X{- ` x20.` ` Pursuant to Section 1.3 of the rules,DH{ S yO-ԍx47 C.F.R.  1.3.D we find good cause to accept the Cities' late xjfiled Opposition. We note that the Opposition consists primarily of a copy of a completed and  xsigned FCC Form 394 that has been filed on behalf of DDC and is publicly available. DDC does  xLnot challenge the authenticity or reliability of the document and claims no prejudice as a result of the late filing. Accordingly, we accept the Opposition.  X- ` Px21.` ` Although DDC styles its initial pleading as a "Petition for Special Relief," both its  x=Petition and its Reply assert, as an initial matter, that special relief is not necessary in order for  X- xDDC to establish rates in accordance with the small system rules.KIS yO&-ԍxPetition at 5; Reply at 3.K DDC states that it seeks" I,-(-(ZZ"  xspecial relief only to the extent we find that it fails to meet the eligibility criteria for small system  X-relief.KJS yOb-ԍxPetition at 5; Reply at 3.K  X- ` x22.` ` An operator that believes it meets the criteria for small system rate need not file  xa petition; instead, it should file a completed Form 1230 with either its local franchising authority  X- x[or the Commission or both, depending upon the circumstances.MKXS yO-ԍx47 C.F.R.  76.934(h)(3).M The franchising authority or  xthe Commission then will determine whether the system meets the criteria and, if so, whether the  X_- xoperator has properly completed Form 1230.L_S {O -ԍx47 C.F.R.  76.934(h)(5), (6); see Small System Order, 10 FCC Rcd at 7424, 7427. The special relief procedure, by contrast, is for  xthe benefit of systems and operators that do not meet the small system criteria but that  xLnonetheless seek to justify the application of the small system costofservice methodology in  X -light of the particular circumstances they face.SM zS {OE-ԍxSmall System Order para. 36.S  X - ` x23.` ` Before filing its Petition, DDC pursued the first course of action described above  xby submitting a letter to the Commission claiming that it met the small system criteria and  X - xindicating its intent to file Forms 1230 on behalf of its regulated systems.HN S yO{-ԍxPetition, Attachment E.H In response to  xiBureau inquiries, DDC made further submissions seeking to substantiate its claim, but was unable  X- x\to do so.HOS yO-ԍxPetition, Attachment F.H Thereafter, DDC made a final submission stating that one of its prior filings was  Xy- xincorrect in that it overstated Hindery's interest in cable operator RMG.:Py, S {OV-ԍxId.: As discussed above,  xDDC argued that the cable subscribers of RMG should not be deemed attributable to Hindery  xbecause of an employee incentive program that allegedly reduced the value of Hindery's interest  X4- x.in RMG to below 20%.LQ4 S {O-ԍxSee supra at  11.L In particular, according to DDC certain employees are eligible to earn  x"points," with each point entitling the employee to a percentage of the profits the partnership  X- xreceives upon the sale of any of its cable systems.HRP S yO#-ԍxPetition, Attachment F.H It appears that but for the incentive program,  X- xthese profits would have gone to Hindery rather than the employees.:SS {O%-ԍxId.: Although Hindery's  xpartnership interest exceeds 20%, he will recover less than 20% of the profits upon the sale of" rS,-(-(ZZD"  X- xthe partnership's systems, according to DDC.:TS {Oy-ԍxId.: For this reason, DDC argued that Hindery's  X- xownership interest should be deemed to be less than 20% and therefore nonattributable.:UZS {O-ԍxId.: In that  x<case, according to DDC, the total number of subscribers attributable to Hindery would have been  xfewer than 400,000 and DDC's affiliation with Hindery would not have precluded it from  xyestablishing rates in accordance with the small system rules. In its Petition, DDC reasserts this  X-same argument.?VS yO* -ԍxPetition at 5.?  X_- ` x24.` ` As noted, we rejected this argument when DDC first made it. The significant  xfactor under the Commission's affiliation rules is the percentage of an operator's interest in a  X1- xzcable system, not the value of that interest.QW1|S {O^-ԍxSee supra at  4, n. 9.Q Hindery's ownership interest in RMG exceeds  X - x20%.HX S yO-ԍxPetition, Attachment F.H In its Petition, DDC offers nothing new in support of its argument that the employee  xincentive program effectively dilutes Hindery's actual 20% ownership interest. Therefore we  xydecline DDC's request to revisit our prior determination that the DDC systems were not eligible for small system relief as of June 5, 1995.  X - ` #x25.` ` As for DDC's eligibility for special relief, we first must determine the significance,  X- x\if any, of the DDCTriax merger. We faced a similar issue in Marcus. In that case, the cable  xoperator was serving approximately 480,000 subscribers when it filed its petition, but soon  xthereafter acquired additional systems that increased its subscriber base to over one million. We  x rejected the cable operator's argument that we should consider the merits of its petition for special relief without reference to this increase:  ` XxX` ` Events that have transpired since the filing of the Petition may have  ` Ua significant impact on the circumstances relied on to support the  ` waiver. Given that the changed circumstance reflects a substantial  `  increase in the degree to which the operator exceeds the small cable  ` company definition, a factor specifically identified by the  ` Commission as being relevant with respect to such petitions, we  ` cannot ignore the substantial impact that [the postPetition]  ` transactions have. Moreover, our rules governing special relief  ` Epetitions specifically recognize the potential significance of changes  X9-in circumstances that occur after the filing of a petition.fY9S {O&-ԍxMarcus at  17 (citing 47 C.F.R.  76.7).fx` "9 0 Y,-(-(ZZ"Ԍ X- xԙWe ultimately denied the petition in Marcus due, in part, to the extent by which the cable  xLoperator exceeded the 400,000subscriber definition of a small cable company as a result of the  X-postpetition cable system acquisitions.IZS {OM-ԍxMarcus at  25.I  X- ` x26.` ` We cannot determine a petitioning system's eligibility for small system relief based  X- xsolely on a narrow snapshot of that system's subscriber counts at a given moment in time.F[ZS {O-ԍxId. at  30.F We  ximust take a broader perspective to determine whether granting the relief to the system in question  Xa- xis consistent with the goals of the Small System Order.!\aS yO -  ԍxIn general, we believe the waiver process is better suited for a petitioner that has a fixed ownership and affiliation status, as opposed to a petitioner that is contemplating adjustments to its ownership or affiliation status.! For this reason, the TriaxDDC  x[merger is highly relevant to resolving the Petition at issue here. As the Cities note, because of  x.the merger announced on April 17, 1996, the information offered by DDC to support its waiver  x<request of April 22, 1996 does not accurately depict the broader context. Most notably, the chain  xof affiliated interests that DDC carefully describes in its Petition has been replaced by an entirely  xdifferent ownership structure. In addition, whereas before the merger DDC directly served  xy115,000 subscribers (disregarding affiliated entities), its successor, Triax, directly serves almost  X - x490,000 subscribers.M] DS yO-ԍxOpposition, Attachment at 9.M Ownership interests and subscriber counts are starting points for  xconsidering a petition such as the one before us. We cannot ignore the fundamental changes in these factors that have occurred as a result of the merger. x` `  Xf- ` `x27.` ` We also must keep in mind that the Commission adopted small system relief to  xassist smaller operators that were found to face burdens disproportionate to their size "in  xattempting simultaneously to provide good service to subscribers, to charge reasonable rates, to  X!- x.upgrade networks, and to prepare for potential competition."u^!S {O-ԍxSmall System Order, 10 FCC Rcd at 7406; see id. at 7420.u To the extent DDC faced such  xZobstacles in the operation of its small systems, the Triax merger appears to have greatly alleviated  xLany concerns. The attachment to the Form 394 seeking local franchising authority approval of the TriaxDDC merger states:  XxThe benefits of this transaction and the operating efficiencies it will produce will  Bbe felt by customers and the communities served. For example, additional and  #more sophisticated services, such as multichannel payper-view and highspeed  data links, which would not be economically or technically feasible in most small  markets, now become possible. This transaction will allow Triax to bring the  information super highway to those parts of rural America which it serves.  Operational efficiencies will help reduce the upward pressure on customer rates"$ f ^,-(-(ZZ"  while allowing improvements in customer service and technical quality. As the  telecommunications environment continues to change, the communities served by  the merged company will preserve the benefits of a strong national operator with  `a significant local presence, and gain the opportunity to receive advanced and affordable telecommunications services.  * * * * *  XxThe communities currently served by DD Cable are almost without exception in  ~close geographic proximity to existing Triax systems and/or share a community  of interest such as school districts, economic development objectives and the like.  Triax expects to derive significant economies of scale and operating efficiencies  Passociated with regional clusters of systems. In turn, these operating efficiencies  will pave the way for the availability of more programming choices, advanced  telecommunications services improved customer service and technical  X -performance.R_ S yO -ԍxOpposition, Attachment at 26, 27.R   xzThis description, which apparently was submitted to all of the communities served by DDC,  xaggressively predicts the extent of the benefits that will result when its systems are acquired by  x}"a strong national operator" that will be able to provide "advanced and affordable  X4- xtelecommunications services.":`4XS {O=-ԍxId.: It appears that many of the burdens commonly encountered by  xsmall systems no longer burden the DDC systems and thus do not furnish a justification for waiving our rules regarding eligibility for the small system costofservice methodology.  X- ` px28. ` ` Nevertheless, DDC contends that the merger is irrelevant. To the extent we  xdetermine otherwise, DDC argues that the merger is not a bar to granting the Petition if the  xmerger is considered in the context of other transactions planned by Triax. We find these arguments unpersuasive.  Xe- ` x29.` ` In its first argument concerning the merger, DDC states that the object of the  xZPetition is to apply the small system rules to rate complaints that were pending at the Commission  X7- x.as of June 5, 1995, the date the Small System Order was released. As DDC correctly states, to  xbe eligible for this relief a cable company must show that the company and its systems were  x?small as of June 5, 1995 and as of the date the complaints were filed. DDC asserts that a  x"proposed transaction, announced more than one year later and which has yet to be consummated,  X- xhas no bearing on whether [DDC] met the small cable company definitions on June 5, 1995."<aS yOx%-ԍxReply at 3.<  xWe agree. Yet, as discussed above, DDC in fact did not meet the small cable company test as  xMof June 5, 1995 because of its affiliation with Hindery, a cable operator who at that time was"! za,-(-(ZZ "  X- xattributed with over 400,000 subscribers.LbS {Oy-ԍxSee supra at  23.L Thus, we reject DDC's first argument because,  xirrespective of the Triax merger, DDC did not meet the small cable company definition as of June  X-5, 1995.:cZS {O-ԍxId.:  X- ` Bx30.` ` Second, DDC argues that if we do consider its merger with Triax, we also must  xconsider other transactions planned by Triax that ultimately will result in Triax having a total  Xv- xsubscriber base of fewer than 400,000 subscribers.>dvS yO -ԍxReply at 45.> As a result of the initial merger, the  xcombined TriaxDDC cable operator now serves 487,135 customers, "making it one of the  XH- xlnation's 25 largest multiple system operators."NeH|S yOu-ԍxOpposition, Attachment, p. 9.N According to DDC, however, Triax has  xcontracted to sell other cable systems serving a total of 50,000 subscribers and "plans to sell"  X - xLadditional systems serving 200,000 subscribers.<f S yO-ԍxReply at 4.< If all these transactions came to pass, DDC  xclaims that Triax would have a subscriber count of under 400,000, and therefore its small systems would qualify for relief. x` `  X - ` ~x31.` ` Absent special relief, a small system may set rates in accordance with the small  xsystem costofservice methodology if it is owned by a small cable operator, not simply because  xit expects to be owned by such an operator at some time in the future. As described by DDC,  xthe transactions that allegedly will reduce Triax's subscriber base below 400,000 are far too  xindefinite and speculative to be considered here. For example, DDC simply states that Triax has  xMcontracted to sell systems serving a total of 50,000 subscribers. The Petition lacks relevant  xdetails such as when, or whether, this transaction is scheduled to close. In addition, there is no  x=description of any conditions under which the agreement would be voided or the likelihood of  xKsuch conditions occurring. Even were this transaction to be consummated, TriaxDDC would still  xMserve in excess of 400,000 subscribers. To fall below this level and thus become eligible for  xsmall system relief, Triax would have to consummate additional system sales for which it has  x"plans" but which are not now even under contract. In contrast to the speculativeness of these  xjtransactions, we note that the TriaxDDC merger, that will result in Triax serving almost 490,000  xsubscribers, was scheduled to close as of a date certain and was conditioned only on the approval  X|- xof the appropriate local franchising authorities.Sg|S yO#-ԍxOpposition, Attachment at 1, 2, 9.S We cannot grant regulatory relief based on a  xZcable operator's indefinite, and perhaps unattainable, "plans" to meet the conditions necessary to justify that relief. "7, g,-(-(ZZ"Ԍ X- ` x32.` ` Taking into account the DDCTriax merger, and having concluded that the  xsubsequent transactions planned by Triax are irrelevant, we find that the systems that are the  xsubject of the Petition are owned by an operator with over 487,000 subscribers, well in excess  xof the small cable company cap. Therefore, these systems do not qualify for the small system  x<costofservice methodology. Notably, at no point in its pleadings does DDC argue that a waiver  xis appropriate in this context. Rather, both of DDC's arguments that account for the Triax  xmerger rest on the notion that the subscriber base of the relevant operator, either DDC or Triax,  xwas or will be below 400,000 as of the pertinent dates, making special relief unnecessary. To  x.the extent a waiver request may be implicit in this context, DDC provides none of the data that  xMwe need to consider such a request. In particular, the pleadings do not assert, and offer no  xfactual basis on which we could conclude, that Triax differs in some relevant way from other  xcable operators of more than 400,000 subscribers. Since the record reveals no relevant  xKdistinctions between Triax and other large cable companies, there is no justification for exempting  xTriax from the general rule that precludes large cable companies from availing themselves of the small system costofservice methodology. Therefore, we must deny the Petition.  X- ` x33.` ` The denial of the Petition does not preclude the subject systems from becoming  xleligible for small system relief at some future time. For example, the Reply states that the  xNsystems are being conveyed from DDC to Triax and that Triax will be serving fewer than  x400,000 subscribers after the consummation of all of the pending and planned transactions. If  xthose transactions take place as described, each system then might qualify as a small system  xowned by a small cable company and thus would be eligible for small system relief as long as  X- xit serves no more than 15,000 subscribers.ahS {O-ԍxSmall System Order, 10 FCC Rcd at 742728.a Of course, as with any petition for special relief,  xwe will review all of the relevant circumstances if and when relief is again sought for these  xsystems. It appears, for example, that Hindery will retain an attributable interest in DDC, even  X- x.after the merger.@iZS yO-ԍxPetition at 10.@ In addition, Triax states that it plans to have representatives of DDC serve  X- x0on an advisory board.NjS yOE-ԍxOpposition, Attachment at 19.N These conditions could lead to a determination that, upon the  xconsummation of all of the anticipated transactions, the systems that are the subject of the Petition  x.will be affiliated with both Hindery and Triax. This result could affect our determination of the  xsystem's eligibility for small system rate relief. Variables such as these reinforce our prior  x[observation that the small system waiver process is bestsuited for a petitioner that has a fixed  xownership and affiliation status, rather than one that is planning transactions that will alter that  X -status.Jk zS {OK$-ԍxSee supra at n. 92.J x` ` "  k,-(-(ZZy"  X-  ORDERING CLAUSES ă  X- ` #x34.` ` Accordingly, IT IS ORDERED that the Petition for Special Relief filed by D. D.  X-Cable Holdings, Inc. and D.D. Cable Partners, L.P. IS DENIED. x  Xv- ` ox35.` ` This action is taken pursuant to delegated authority under Section 0.321 of the  X_-Commission's rules.Fl_S yO-ԍx47 C.F.R.  0.321.F x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhMeredith J. Jones  X -x` `  hhChief, Cable Services Bureau